Get ready for some insights on mortgage rates this year! While there’s a good chance they’ll go down eventually, it’s unlikely to happen in July. Instead, brace yourself for a slight increase or a relatively stable situation throughout the summer.

Predicting mortgage rates is always a tricky business, and this is especially true for July due to uncertainties surrounding the inflation rate and the actions the Federal Reserve might take to address it.

The Fed’s Take on Mortgage Rates

The Federal Reserve has set a target of reducing the inflation rate to 2%. They made significant progress towards this goal in 2022, but unfortunately, the downward trend in inflation stalled in early 2023. The core personal consumption expenditures price index, which is the Fed’s preferred measure of inflation, has been stubbornly stuck at 4.6% to 4.7% throughout this year.

Without a clear improvement in the inflation situation, it’s highly likely that the Federal Reserve will raise the short-term federal funds rate at the conclusion of its July 25-26 meeting. As history has shown, mortgage rates tend to increase in anticipation of such moves by the Fed. Therefore, it’s safe to assume that a rise in mortgage rates is the most probable scenario for July.

How to Get the Best Deals Despite Rising Mortgage Rates

So, how can you cope with the rising mortgage rates and get the best deal for your situation? Here are some tips to help you deal with the changing market:

Lock your rate.

If you find a rate that fits your budget and goals, don’t wait to lock it in. A rate lock guarantees that your lender will honor the quoted rate for a certain period, usually 30 to 60 days. This can protect you from any rate hikes before closing your loan. However, be aware that some lenders may charge a fee for locking your rate, and you might miss out on any rate drops after you lock.

Improve your credit score.

Lenders rely on your credit score to assess both your loan eligibility and interest rate. A higher score translates to lower rates and increased borrowing opportunities. To enhance your credit score, it’s crucial to consistently pay your bills promptly, maintain low credit card balances, refrain from opening new accounts or closing existing ones, and regularly review your credit reports for inaccuracies.

Save for a down payment.

By increasing the amount you invest in your home purchase, you reduce the need for borrowing and subsequently secure a lower interest rate. Additionally, a larger down payment leads to a decreased loan-to-value ratio (LTV), representing the proportion of your mortgage in relation to your home’s value. A lower LTV mitigates risk for the lender and increases your equity. It is advisable to strive for a 20% down payment to circumvent the necessity of paying private mortgage insurance (PMI), an additional fee imposed by lenders as a safeguard against potential default.

Think about an adjustable-rate mortgage (ARM).

If you are not planning to stay in your home for a long time or expect your income to increase in the future, you might want to think about an adjustable-rate mortgage (ARM) instead of a fixed-rate mortgage. An ARM has a lower initial interest rate than a fixed-rate mortgage but can change periodically based on market conditions. This means that your monthly payment can go up or down over time. An ARM can save you money in the short term but also comes with more uncertainty and risk.

Mortgage rates are rising, but that doesn’t mean you must abandon your homeownership dreams. Following these tips, you can cope with the changing market and find the best loan for your needs.

Don’t let the rising mortgage rates discourage you from pursuing your goals. Contact us today and get a free quote here at Gustan Cho Associates. We are here to assist you every step of the way and make your home buying or refinancing experience as simple and stress-free as possible.